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Cash Flow vs Free Cash Flow

Cash flow measures the amount of cash moving into and out of a business.

Unlike earnings, cash flow focuses on actual cash generated by operations.

Strong cash flow may indicate that a company can:

  • Fund growth
  • Pay dividends
  • Reduce debt
  • Weather economic downturns

 

Free Cash Flow is the cash a company generates after paying for operating expenses and capital investments.

Formula:

Free Cash Flow = Operating Cash Flow − Capital Expenditures

Many investors view free cash flow as an important measure of financial strength because it represents cash available for shareholders, debt repayment, or future growth.

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